India has replaced Indonesia as the least-favoured stock market in Asia, according to Business Today, which cited the latest fund managers' survey by Bank of America Corp. The shift signals growing investor caution toward Indian equities, even as global investors continue to buy Indian stocks at the fastest pace among emerging markets in the region.
Survey findings
Business Today reported that the survey received responses from 98 fund managers overseeing a combined $272 billion in assets, with responses collected between August 7 and August 13. As many as 32% of respondents were net underweight on India. Taiwan and Japan continued to rank as investors' preferred markets in the region.
Investor sentiment towards Indonesia, by contrast, has improved. The share of fund managers who were net underweight on Indonesia fell to 27% from 32% in July.
Why fund managers are underweight on India
According to Business Today, a Bloomberg report on the survey identified the absence of clear exposure to artificial intelligence as the biggest concern for Indian equities, followed by weak economic growth. The lack of reforms and elevated valuations were also cited as factors behind the negative view of Asia's fourth-largest equity market.
The survey results come at a time when Indian equities have declined over the past two weeks despite a brighter earnings outlook, indicating that investors remain cautious even as the underlying fundamentals of the market improve, Business Today said.
Investor flows and earnings growth
Global investors have bought more than $4 billion worth of Indian stocks during the current quarter, the highest inflow among emerging markets in the region, according to Bloomberg-compiled data cited by Business Today. This follows record outflows during the first half of the year.
Earnings reported by companies in the benchmark NSE Nifty 50 rose 18% year-on-year in the latest three-month period, well ahead of the 10% growth projected by Motilal Oswal Financial Services Ltd.
Key survey and market metrics:
| Metric | Value |
|---|---|
| Fund managers net underweight on India | 32% |
| Fund managers net underweight on Indonesia, August | 27% |
| Fund managers net underweight on Indonesia, July | 32% |
| Global inflows into Indian stocks, current quarter | More than $4 billion |
| Nifty 50 earnings growth, latest quarter (y/y) | 18% |
| Motilal Oswal earnings growth projection | 10% |
| Nifty 50 recovery from March low | 8% |
| Nifty 50 decline year-to-date | 8% |
Nifty 50 performance and energy risks
Although the Nifty 50 has recovered 8% from its recent March low, it remains Asia's second-worst performing major market this year, with an 8% decline, according to Business Today. The index is also heading towards ending a remarkable 10-year streak of annual gains.
Business Today noted that India was last ranked as the least-preferred market in the BofA survey in May, when rising energy costs were putting pressure on economic growth following the US-Iran war and the resulting surge in global crude prices. With no indication that the conflict is nearing a resolution, energy costs are rising again, adding to investor concerns.
Indonesia gains favour
Investor sentiment towards Indonesia has moved in the opposite direction. The benchmark Jakarta Composite Index has gained more than 20% from its June low, helped by central bank measures aimed at stabilising the currency and easing concerns that MSCI Inc. could downgrade the market to frontier-market status.
What the survey means for market watchers
The BofA survey's divergent positioning — a 32% net underweight on India against a 27% net underweight on Indonesia — comes even as India attracts the largest quarterly equity inflows in the region and posts 18% earnings growth. For executives, investors and equity analysts tracking Asian capital flows, the gap between fund-manager sentiment and actual inflows shows that AI exposure, reform momentum, valuations and energy costs are weighing on India's investment case, based on the factors Business Today identifies.
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